RBA Meeting Minutes Unable to Prompt Australian Dollar US Dollar (AUD/USD) Exchange Rate Recovery
The Australian Dollar to US Dollar (AUD/USD) exchange rate remained on the back foot even after the Reserve Bank of Australia (RBA) ruled out the possibility of negative interest rates.
Even though the minutes of the RBA’s recent emergency policy meeting indicated that ‘the cash rate is now at its effective lower bound’ this failed to shore up the Australian Dollar (AUD).
As global markets experienced another day of anxiety the prices of base metals came under fresh pressure, with a -2.9% fall in copper prices boding ill for the Australian economic outlook.
A surprise improvement in the Chinese Caixin manufacturing PMI also failed to offer any degree of support to AUD exchange rates, in spite of the world’s second largest economy showing signs of recovery.
Smaller Dip in ADP Employment Change Benefits US Dollar Exchange Rates
A smaller-than-expected decline in the ADP employment change figure for March offered some support to the US Dollar (USD), meanwhile.
As forecasts had pointed towards a sharp downturn of -150,000 in the wake of last week’s poor jobless claims data the decline of -27,000 prompted some relief.
However, as the survey only accounts for the period up to the 12th March this fails to reflect the true impact of the recent Covid-19 shutdown.
As a result, the AUD/USD exchange rate could still find a solid rallying point on Friday with the release of the timelier non-farm payrolls report.
Sharp Fall in US Payrolls Forecast to Dent US Dollar Demand
With the headline non-farm payrolls figure expected to show a drop of -100,000 on the month this could knock the US Dollar off its bullish run.
Evidence that the US labour market is loosening in response to the current economic crisis may limit the potential for USD exchange rate gains, even if market risk aversion lingers.
A major deterioration in the US employment picture may force the Federal Reserve to consider further policy action in the months ahead, leaving the US Dollar exposed to potential selling pressure.
The AUD/USD exchange rate could also find renewed traction ahead of the weekend if the prevalent sense of market anxiety sees any signs of easing.
If the recent deterioration encourages investors to buy back into higher-yielding assets, capitalising on their lower prices, this may offer the Australian Dollar a boost.
Australian Dollar Set to Trend Lower on Services PMI Contraction
Confidence in the outlook of the Australian economy could take a fresh blow on Thursday, however, if the finalised services PMI for March confirms a major monthly contraction.
Although the service sector is not the major driving force of the Australian economy any weakness here would still raise the risk of a negative first quarter gross domestic product.
Even if the Chinese economy continues to show signs of renewed resilience, meanwhile, this may not be enough to encourage any major shift in market sentiment.
As long as Covid-19 looks set to plunge the global economy into a deep recession the Australian Dollar could struggle to hold onto any positive momentum for long.